Amex Class Action Defense Cases–Homa v. American Express: Third Circuit Reverses Dismissal Of Consumer Fraud Class Action Holding Class Action Arbitration Waiver Unenforceable Under New Jersey Law

District Court Erred in Dismissing Class Action Based on Arbitration Clause in Credit Card Agreement and Class Action Waiver in Arbitration Clause because New Jersey Law rather than Utah Law Applied and, under Facts Underlying Class Action Complaint, New Jersey would not Enforce Class Action Arbitration Waiver Third Circuit Holds

Plaintiff filed a class action against American Express and American Express Centurion Bank (collectively “Amex”) alleging violations of New Jersey’s Consumer Fraud Act; the class action complaint asserted that Amex misrepresented the terms of its “Blue Cash” credit card reward program, which allegedly promised customers up to 5% cash back on purchases made with the card. Homa v. American Express Co., ___ F.3d ___, 2009 WL 440912, *1 (3d Cir. February 24, 2009). According to the allegations underlying the class action, plaintiff (a New Jersey resident filing the putative class action on behalf of other New Jersey residents) was denied “failed to award him the promised amount of cash back in violation of the New Jersey Consumer Fraud Act.” _Id._ The credit card underlying the class action claims was subject to a cardholder agreement that required arbitration of any disputes and that included a class action waiver, requiring that any claim “be arbitrated on an individual basis … [with] no right or authority for any Claims to be arbitrated [as] a class action.” _Id._ The Agreement included also a choice-of-law provision that stated Utah law governed any disputes, _id._ Defense attorneys moved to compel arbitration of the putative class action claims on individual basis; the defense argued in part that Utah law expressly permits class action arbitration waivers in consumer credit agreements. _Id._ Plaintiff opposed the motion on the ground New Jersey law would prohibit enforcement of the class action waiver and that application of Utah law to deny class action relief would violate New Jersey’s public policy. _Id._ The district court treated the motion as a motion to dismiss under Rule 12(b)(6) and granted the motion, dismissing the class action complaint with prejudice. _Id._ Plaintiff appealed and the Third Circuit reversed.

According to the Third Circuit, “This appeal raises important issues under state law. Nevertheless, we must first consider whether the Federal Arbitration Act (‘FAA’), 9 U.S.C. §§ 1-16, precludes this Court from applying state law unconscionability principles to void a class-arbitration waiver. We conclude that it does not.” Homa, at *1 (citing Doctor’s Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). As part of that analysis, the Circuit Court determined whether Utah law or New Jersey law governed the dispute. Id., at *2-*3. The Court concluded that “the Supreme Court of New Jersey might well find that the application of Utah law allowing class-arbitration waivers in the context of a low-value consumer credit suit violates a fundamental policy of New Jersey.” Id., at *3 (footnote omitted). But the Third Circuit found also that it must first address whether “the FAA and this Court’s decision in Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007), preclude us from applying New Jersey unconscionability principles to a class-arbitration waiver.” Id. Based on its analysis of the FAA, id., at *3-*5, the Circuit Court held that its prior decision in Gay does not preclude the Court from relying on New Jersey law to invalidate the class action arbitration waiver, id., at *5. And the Court further concluded that if New Jersey law governed the dispute then the district court erred in granting the motion to dismiss the class action because “the class-arbitration waiver violates fundamental New Jersey public policy as applied to small-sum cases,” id., at *6. So the critical issue was whether Utah law or New Jersey law applied.

Arbitration Class Action Court Decisions Uncategorized

Class Action Defense Cases—In re Bank of America Auction Rate Securities (ARS): Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation But Transfer Class Actions To California

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Opposed by Responding Class Action Plaintiffs, but Transfers Actions to Northern District of California Three class actions – one each in California, Illinois and New York – were filed against Bank of America Investment Services, Inc.; Bank of America Securities, LLC; Bank of America Corp. (collectively “BofA”) alleging “that Bank of America entities and/or its employees made misrepresentations in the context of the sale of auction rate securities (ARS).

Class Action Court Decisions Multidistrict Litigation PSLRA/SLUSA Class Actions Uncategorized

CAFA Class Action Defense Cases–Dennison v. Carolina Payday Loans: Fourth Circuit Affirms Remand Of Class Action To State Court Holding Class Action Fairness Act (CAFA) Minimal Diversity Not Established

Class Action Properly Remanded to State Court because under CAFA (Class Action Fairness Act) Defendant is Citizen of Both State of Incorporation and State of Principal Place of Business, and CAFA does not Permit Defendant to Choose State of Citizenship to Satisfy Minimal Diversity for Removal Jurisdiction Fourth Circuit Holds

Plaintiff filed a class action in South Carolina state court against Carolina Payday Loans alleging violations of state law in “payday loans” that were allegedly unconscionable; plaintiff was a South Carolina citizen, and brought the putative class action complaint on behalf of herself and other South Carolina citizens. Dennison v. Carolina Payday Loans, Inc., 549 F.3d 941, 942 (4th Cir. 2008). Defense attorneys removed the class action to federal court asserting removal jurisdiction under the Class Action Fairness Act (CAFA); the defense argued minimal diversity had been met because Carolina Payday “is a citizen of Georgia, where it claims it has its principal place of business, even though it is also a citizen of South Carolina, where it is incorporated,” or because some members of the putative class may have moved out of state. Id. The district court granted plaintiff’s motion to remand the class action to state court because Carolina Payday and the putative class members were citizens of South Carolina. Id. The district court additionally found that the class action “fell within the ‘home-state exception’ to CAFA jurisdiction set forth in 28 U.S.C. § 1332(d)(4) because in a class limited by definition to ‘citizens of South Carolina,’ at least two-thirds of the class members necessarily are citizens of South Carolina.” Id. The Fourth Circuit granted defendant’s request for permission to appeal the remand order, and affirmed.

The Circuit Court found this case to be “substantively identical” to Johnson v. Advance America, Cash Advance Centers of South Carolina, Inc., 549 F.3d 932 (4th Cir. 2008). Dennison, at 942. Because the class action complaint expressly defined the putative class “to include only citizens of South Carolina,” defense counsel’s speculation that class members may have moved out of state was inaccurate. Id. The Fourth Circuit first held that a class defined as “all citizens of South Carolina” is indistinguishable from a class defined as “citizens of South Carolina who are domiciled in South Carolina” because “an individual must be domiciled in a State in order to be a citizen of that State.” Id., at 942-43 (citations omitted). Accordingly, the class action complaint properly limited the scope of the class to South Carolina residents/citizens. Id., at 943. The Court therefore found irrelevant Carolina Payday’s evidence that some of its South Carolina borrowers were now citizens of other states because class membership was limited to “citizen[s] of South Carolina at the time the complaint was filed.” Id. The Fourth Circuit also found unpersuasive the defense argument that because Carolina Payday has its principal place of business in Georgia, it is allowed to rely on its Georgia citizenship to establish minimal diversity under CAFA. See id., at 943-44. The Circuit Court explained at page 944 that CAFA “does not give greater weight to a corporation’s principal place of business than to its place of incorporation” and that, accordingly, for purposes of establishing diversity under CAFA “Carolina Payday is a citizen of both South Carolina, its State of incorporation, and Georgia, assuming it is able to demonstrate that its principal place of business is in Georgia.” The Fourth Circuit therefore affirmed the district court order remanding the class action to state court, id., at 944.

Class Action Court Decisions Class Action Fairness Act (CAFA) Uncategorized

CAFA Class Action Defense Cases–McLoughlin v. People’s United: Connecticut Federal Court Denies Motion To Remand Class Action To State Court Holding Removal Jurisdiction Exists Under Class Action Fairness Act (CAFA)

Class Action Properly Removed to Federal Court under CAFA (Class Action Fairness Act of 2005) because Defendants Established by Preponderance of the Evidence that Class Action Placed more than $5 Million in Controversy Connecticut Federal Court Holds Plaintiffs filed a class action in Connecticut state court against Bank of New York Mellon (“Mellon”) and People’s United Bank (“Bank”) alleging negligence, invasion of privacy, breach of fiduciary duty, and violations of Connecticut’s Unfair Trade Practices Act (CUTPA); the class action complaint asserted that Mellon lost electronic data belong to Bank customers.

Class Action Court Decisions Class Action Fairness Act (CAFA) Removal & Remand Uncategorized

Class Action Defense Cases–Moore-Thomas v. Alaska Airlines: Ninth Circuit Reverses Dismissal Of Class Action For Failure To Arbitrate Under RLA And Holds Class Action Improperly Removed To Federal Court

Defendant Improperly Removed Labor Law Class Action to Federal Court and Therefore District Court Erred in Dismissing Class Action for Lack of Subject Matter Jurisdiction Ninth Circuit Holds Plaintiff filed a class action against Alaska Airlines alleging labor law violations; the class action complaint asserted that defendant willfully failed to pay its former employees all wages due upon termination as required by Oregon law. Moore-Thomas v. Alaska Airlines, Inc., ___ F.

Class Action Court Decisions Employment Law Class Actions Uncategorized

PSLRA Class Action Defense Cases–Public Employees’ Retirement Ass’n v. Deloitte & Touche: Fourth Circuit Affirms Dismissal Of Securities Class Action Without Leave To Amend For Failure To Adequately Plead Scienter

Securities Fraud Class Action Claims Against Accountants Properly Dismissed for Failure to Plead Scienter Required by Private Securities Litigation Reform Act (PSLRA) because Evidence Showed Company Concealed Information from Accountants Fourth Circuit Holds

Plaintiffs filed a class action against various defendants alleging securities fraud violations; the class action complaint alleged that Royal Ahold, N.V., a Dutch corporation, and U.S. Foodservice, Inc. (USF), a Maryland-based Ahold subsidiary, engaged in improper accounting practices. Public Employees’ Retirement Ass’n of Colorado v. Deloitte & Touche LLP, 551 F.3d 305, 306 (4th Cir. 2009). The class action also alleged that Ahold’s accountants, Deloitte & Touche LLP (Deloitte U.S.) and Deloitte & Touche Accountants (Deloitte Netherlands) – which are two legally distinct entities, participated in Ahold’s alleged fraud, id. Defense attorneys for the Deloitte defendants moved to dismiss the class action on several grounds, including for failure to satisfy the heightened pleading requirements established by the Private Securities Litigation Reform Act (PSLRA). In pertinent part, the PSLRA requires that plaintiffs plead facts alleging a “strong inference” that the defendant in a securities fraud lawsuit acted with the requisite scienter. Id., at 306. The district court granted the defense motion and dismissed the class action complaint as to the Deloitte defendants without leave to amend, id., at 307-08. The Fourth Circuit affirmed, finding “the inference that the Deloitte defendants lacked the necessary scienter more compelling than any competing inference that they knowingly or recklessly perpetrated a fraud on Ahold’s investors” and that the proposed second amended class action complaint was futile. Id., at 306.

We do not here discuss in detail the nature of the improper accounting practices underlying the class action claims. See Deloitte, at 306-08. In brief, the two frauds Ahold alleged perpetrated involved (1) the improper consolidation of revenue from various joint ventures, in violation of GAAP, that resulted in substantial overstatement of earnings, and (2) the premature recognition of income from promotional allowances. Id., at 307. The actions led Ahold to restate earnings for fiscal years 2001 and 2002, and revealed that Ahold’s accounting practices had overstated earnings by more than $500 million. Id. The announcement led to a 60% drop in stock price, and to SEC civil enforcement actions against Ahold and various individual defendants. Id. Moreover, at least 21 private class action lawsuits were filed alleging securities fraud, and the Judicial Panel on Multidistrict Litigation centralized the class actions for pretrial purposes in the District of Maryland, id. The district court appointed Public Employees’ Retirement Association of Colorado and Generic Trading of Philadelphia, LLC as Lead Plaintiffs, and a Consolidated Amended Securities Class Action Complaint was filed against Ahold entities, the Deloitte defendants, and others. Id. Lead Plaintiffs settled the class action as to the non-Deloitte defendants, and then filed a motion to amend the class action complaint to assert new claims against the Deloitte defendants. Id., at 308. The district court denied the motion on the basis of futility, and the Fourth Circuit affirmed.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases— In re Text Messaging Antitrust: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiffs’ Motions To Centralize Class Action Litigation But Chooses Northern District Of Illinois As Transferee Court

Faced with Three Motions for Centralization, Judicial Panel Grants Plaintiffs’ Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Unopposed by Responding Class Action Plaintiffs and Defendants, and Transfers Class Actions to Northern District of Illinois Sixteen (16) class actions – filed in federal courts in the District of Columbia, Arkansas, Illinois, Kansas, Louisiana, Mississippi, New Jersey, Ohio, Pennsylvania, Puerto Rico, and Texas – were filed against various defendants alleging violations of federal antitrust laws; 15 additional and related class actions also were filed, and were treated as potential tag-along class actions.

Class Action Court Decisions Multidistrict Litigation Uncategorized

Class Action Defense Cases–Solon v. Midwest Medical: Illinois State Appellate Court Holds Statutory Authorization For Reasonable Expenses Up To $20 Did Not Support Charging $20 Flat Fee In Connection With Copy Services

As Matter of First Impression, in Class Action Challenging $20 Flat Fee for “Handling” Copy Requests for Medical Requests, Statute Only Authorized Reimbursement of “Reasonable Expenses” which, by Definition, would Vary Among Copy Requests Illinois State Court Holds

Plaintiffs filed a class action against Midwest Medical Records Association (MMRA) alleging deceptive and illegal practices in violation of Illinois law; specifically, the class action complaint alleged that MMRA “overcharge[ed] patients for requested copies of medical records.” Solon v. Midwest Medical Records Ass’n, Inc., 898 N.E.2d 207, 208 (Ill.App. 2008). According to the allegations underlying the class action, MMRA is retained by health care facilities and practitioners to handle patient requests for copies of medical records; MMRA employees work on-site at the health care offices where they “receive medical records requests, locate and copy the requested records, and send the records to the patient along with a bill for services.” Id. The class action further alleges that MMRA does not charge the health care provider for its services but, rather, charges the patients a fee for providing the records requested, id. Specifically, MMRA negotiates a “price per page” that it will charge the patients, and adds a “flat $20 handling fee, which defendant refers to as a ‘process fee.’” Id., at 208-09. The class action alleged, inter alia, that this charge violated the Consumer Fraud and Deceptive Business Practices Act and the Uniform Deceptive Trade Practices Act, id., at 209. Defense attorneys moved to strike portions of the class action on the grounds that the flat $20 handling fee did not violate Illinois law, id. at 208. The trial court denied the motion but certified the following question for appellate review: “Is it reasonable per se for a provider of medical record copies under [sections 8-2001 and 8-2003 of the Code] to charge the full amount of the $20 process fee, or is the provider limited to a lesser charge if the evidence shows that the lesser charge is all that is reasonable?” Id., at 209. The appellate court concluded that the $20 fee was not per se reasonable.

In essence, the class action alleged that Illinois law “only permits defendant to charge for the lesser of the ‘reasonable expense of production, Illinois’ statutory price limit for copies applicable to the type of copies [defendant] furnished, or a fair price for the copies.’” Solon, at 209. The gravamen of the class action was that it was improper to charge a flat $20 handling fee in connection with the copy requests. Id. The Illinois appellate court recognized that this presented an issue of first impression, and it began its legal analysis by summarizing the rules governing statutory construction. Id. The relevant statute provides, “Every [health care provider] shall, upon the request of any patient * * *, * * * permit copies of [a patient’s medical] records to be made by him * * * or his * * * physician * * *…. The [health care provider] shall be reimbursed by the person requesting copies of records at the time of such copying for all reasonable expenses, including the costs of independent copy service companies, incurred by the health care facility in connection with such copying not to exceed a $20 handling charge for processing the request for copies * * *.” Id., at 209-10 (quoting 735 ILCS 5/8-2001 (West 2004)). Additionally, “the patient must reimburse health care providers for the cost of the copies at a maximum per-page rate that varies with the number of pages copied, as well as any shipping costs.” Id., at 210(citing 735 ILCS 5/8-2001, 8-2003 (West 2004)). Defense attorneys argued that a flat $20 fee is reasonable per se “because it is within the maximum amount allowed to be charged under the statute”; plaintiffs countered that the statute permits only “‘reasonable expenses’ incurred in connection with copying the records” in addition to the per page cost of the copies themselves, and that the amount of those expenses may not exceed $20. Id.

Class Action Court Decisions Uncategorized

FDCPA Class Action Defense Cases–Herkert v. MRC Receivables: Illinois Federal Court Amends Class Definitions And Certifies Class Action In FDCPA (Fair Debt Collection Practices Act) Class Action

Class Action Challenging Defendants Debt Collection Practices Warranted Class Action Treatment Illinois Federal Court Holds

Plaintiffs filed a class action against MRC Receivables and others alleging violations of the federal Fair Debt Collection Practices Act (FDCPA) and the Illinois Collection Agency Act (ICAA). Herkert v. MRC Receivables Corp., 254 F.R.D. 344, 346 (N.D.Ill. 2008). Defendants are engaged in the business of “purchasing and managing charged-off consumer receivables portfolios.” Id. After defendants filed suit against them to collect on credit card debts, plaintiffs filed their class action lawsuit, id. Specifically, the class action complaint alleged that defendants “had a policy and practice of violating Section 1692e and 1692f of the FDCPA, and Section 425/9(a)(20) of the ICAA,” id., at 346-47. The gravamen of the class action is that defendants filed lawsuits to collect credit card debts without attaching a signed contract to the complaints, and after the expiration of the 5-year statute of limitations. Id., at 347. Plaintiffs moved the district court to certify the litigation as a class action, id., at 346. The district court amended the definition of the class and, as amended, granted plaintiffs’ motion for class action treatment.

The motion for class certification proposed three classes, under the FDCPA and one under the ICAA. Heckert, at 347. The district court readily found Rule 23(a)(1)’s numerosity requirement for class actions to be satisfied because defendants “file…thousands of cases each month in Illinois state court.” Id., at 348. The federal court rejected defendants’ claim that they would not be able “to construct an accurate search of their record-keeping system on a searchable, system-wide basis, and that it would thus be impossible to determine the identity of the class members.” Id. However, the court agreed to amend the class definitions “to ensure that the classes are ascertainable based on objectively identifiable criteria, namely, according to the date of the final statement of account as given in the affidavits attached to the state court complaints.” Id. As so amended, the class definition would not require the parties to rely on defendants’ records in order to ascertain class membership, id., at 349.

Certification of Class Actions Class Action Court Decisions FDCPA Class Actions Uncategorized

FLSA Class Action Defense Cases–Gortat v. Capala Brothers: New York Federal Court Grants Plaintiffs’ Motion To Dismiss Crossclaims Against Named Plaintiffs In Labor Law Class Actions

In FLSA Class Action, Plaintiffs’ Motion to Dismiss Crossclaims by Defendants Granted because Negligence and Breach of Fiduciary Duty Claims could not Survive New York Federal Court Holds, but Conversion Claim not Challenged and Defendants Granted Leave to Amend Tortious Interference Claim

Six plaintiffs filed a class action against their employer, Capala Brothers, a construction company, alleging violations of the federal Fair Labor Standards Act (FLSA) and the New York Minimum Wage Act; in response to the class action complaint, defendants counterclaimed against the plaintiffs for conversion, negligence, tortious interference with contract, and breach of fiduciary duty. Gortat v. Capala Brothers, Inc., 585 F.Supp.2d 372, 374 (E.D.N.Y. 2008). The counterclaims to the class action were premised on the following: (1) the negligence claims alleged that four plaintiffs were negligent in replacing a roof to a building, resulting in $40,000 in rain damage, that three plaintiffs were negligent in failing to secure electrical motors at the site, which were also damaged by rain, that two plaintiffs were negligent in allowing concrete to harden in a concrete mixer, and that two plaintiffs were negligent in failure to secure two certain equipment resulting in their loss; (2) the tortious interference with contract claim alleged that three plaintiffs interfered with the employment contracts of current Capala employees, “caused lower moral[e], dissent and lower productivity” causing $100,000 in damage to Capala, and that one plaintiff, after quitting, “interfered with the employment contracts of the other four plaintiffs” causing $300,000 in damages to Capala, and (3) the breach of fiduciary duty claim alleged that plaintiffs “fail[ed] to provide ‘adequate and timely notice’ before quitting…as required by their employment contracts” causing Capala to default on certain construction contracts and suffer $400,000 in damages. Id., at 374-75. Plaintiffs answer the conversion counterclaim, but moved to dismiss the remaining counterclaims, id., at 374. The district court granted plaintiffs’ motion.

The district court first addressed the negligence claims, explaining that New York law “prohibits employers from making any deduction from employee wages except as required by law or regulation or as authorized by the employee for his or her benefit,” including claims for negligence or lost profits. Gortat, at 375 (citations omitted). The federal court concluded that while defendants’ crossclaims were not “obvious examples of attempted wage deduction,” they served the same function and so could be “treated as such to prevent employers from circumventing the protection of employee wages” provided for by New York law. Id., at 375-76. Accordingly, it granted the motion to dismiss defendants’ negligence claims against the named plaintiffs, id., at 376. With respect to the tortious interference claims, the district court observed that plaintiffs were terminable at will and that plaintiffs could not be liable unless they engaged in “culpable” conduct. Id. The court found that the allegations failed to allege wrongful conduct adequate to support the interference claim, so those claims, too was dismissed. Id. Turning to the breach of fiduciary duty claim against the plaintiffs, the federal court noted that defendants were required to pleading “both the existence of a duty based on a relationship of trust and confidence and breach of that duty.” Id. (citation omitted). Failing to give advance notice of terminating their employment, standing alone, did not constitute a sufficient basis to support the breach of fiduciary duty claim, id., at 376-77.

Class Action Court Decisions Employment Law Class Actions Uncategorized